Airtel Payments Bank launched, with vow to shake up old banking system

New Delhi, Jan. 13 -- Airtel Payments Bank (APB), a joint venture between Bharti Airtel Ltd and Kotak Mahindra Bank Ltd, said it will spend Rs3,000 crore to develop a pan-India banking network and digital payments ecosystem.
Through their 80:20 joint venture, Bharti and Kotak aim to disrupt a banking system that has gradually woken up to changing technology and yet incurred heavy costs in serving customers.
"I have seen the insides of traditional banking. I understand that the cost to open a bank account and serve a customer is significantly higher. Airtel Payments Bank with its reach can do so with significantly lower costs, which traditional banks cannot compete with," Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank told reporters at the payments bank launch event.
APB will have a network of 250,000 Airtel retail stores across 29 states, which the company said was more than the total number of ATMs in the country. It will have 5 million merchants, of whom 1 million have already joined APB. The company also introduced an online card in collaboration with MasterCard for cashless payments.
The merchant partners will accept digital payments for goods and services from Airtel Payments Bank customers over mobile phones. The payment bank will not charge any processing fee from merchants and the facility would be totally free for customers as well as the merchants.
APB offers 7.25% interest compared to 3-4% offered by conventional banks. Besides the high interest rate, the bank also offers personal accidental insurance of Rs1 lakh with every savings account and free talktime equaling the amount deposited in the payments bank-savings account. It also plans to venture into referral lending through a non-banking financing company apart from mutual funds.
A payments bank is fully digital and customers can access services over mobile phones, including all feature and basic mobile phones. It offers basic banking including account-opening services and cash deposit and withdrawal facilities. Savings accounts are opened using Aadhaar-based e-KYC. This requires no documents and only the customer's Aadhaar number is needed. However, deposits only up to Rs1 lakh can be made.
Finance minister Arun Jaitley, who presided over the Airtel Payments Bank launch, said the convergence between banking and technology was waiting to happen as excessive use of paper currency was a deterrent in any society.
"It is the currency, which has no names attached with it. Our demonetization effort was to the extent that digital payment must replace paper currency," Jaitley said.
"It should provide competition not only between telecom companies but also between traditional and newer modes of banking. It would provide adequate reply to criticism that cashless economy is about use of credit cards," Jaitley said.
For Sunil Bharti Mittal, who struck a deal with Uday Kotak to invest in APB over a social dinner, the motivation came from his telecom operations in Kenya, where he said 90% of financial transactions happen online and his company Bharti Airtel Africa B.V. moves $20 billion through Airtel Money.
"Cost of doing that is a fraction of what a traditional bank incurs. I think a child born today will never ever go to a bank. Therefore, our timing could not have been better," Mittal said.
In 2015, eleven companies had received an in-principle approval from the Reserve Bank of India (RBI) to offer payments bank services. Of these, three-Chalomandalam Distribution Services, Sun Pharmaceuticals and Tech Mahindra-have surrendered their licences.
One of the biggest stakeholders in the emerging sector is Paytm Payments Bank Ltd, which has created a niche for itself by advocating digital transactions from its inception.
Airtel's Mittal sees enough space for everyone to function.
"We are products of competition. We will compete head on as we have a massive distribution channel and reach. There are 1.3 billion people to be served and we will compete," he added.